Correlation Between CECO ENVIRONMENTAL and DiamondRock Hospitality

Can any of the company-specific risk be diversified away by investing in both CECO ENVIRONMENTAL and DiamondRock Hospitality at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining CECO ENVIRONMENTAL and DiamondRock Hospitality into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between CECO ENVIRONMENTAL and DiamondRock Hospitality, you can compare the effects of market volatilities on CECO ENVIRONMENTAL and DiamondRock Hospitality and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in CECO ENVIRONMENTAL with a short position of DiamondRock Hospitality. Check out your portfolio center. Please also check ongoing floating volatility patterns of CECO ENVIRONMENTAL and DiamondRock Hospitality.

Diversification Opportunities for CECO ENVIRONMENTAL and DiamondRock Hospitality

0.81

Correlation Coefficient

CECO ENVIRONMENTAL  DiamondRock Hospitality

Very poor diversification

The 3 months correlation between CECO and DiamondRock is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding CECO ENVIRONMENTAL and DiamondRock Hospitality in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DiamondRock Hospitality and CECO ENVIRONMENTAL is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on CECO ENVIRONMENTAL are associated (or correlated) with DiamondRock Hospitality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DiamondRock Hospitality has no effect on the direction of CECO ENVIRONMENTAL i.e., CECO ENVIRONMENTAL and DiamondRock Hospitality go up and down completely randomly.

Pair Corralation between CECO ENVIRONMENTAL and DiamondRock Hospitality

Assuming the 90 days trading horizon CECO ENVIRONMENTAL is expected to under-perform the DiamondRock Hospitality. In addition to that, CECO ENVIRONMENTAL is 1.71 times more volatile than DiamondRock Hospitality. It trades about -0.07 of its total potential returns per unit of risk. DiamondRock Hospitality is currently generating about 0.06 per unit of volatility. If you would invest  875.00  in DiamondRock Hospitality on September 23, 2024 and sell it today you would earn a total of  15.00  from holding DiamondRock Hospitality or generate 1.71% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

CECO ENVIRONMENTAL  vs.  DiamondRock Hospitality

CECO ENVIRONMENTAL

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CECO ENVIRONMENTAL are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, CECO ENVIRONMENTAL unveiled solid returns over the last few months and may actually be approaching a breakup point.

DiamondRock Hospitality

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in DiamondRock Hospitality are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, DiamondRock Hospitality reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CECO ENVIRONMENTAL and DiamondRock Hospitality

The main advantage of trading using opposite CECO ENVIRONMENTAL and DiamondRock Hospitality positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CECO ENVIRONMENTAL position performs unexpectedly, DiamondRock Hospitality can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in DiamondRock Hospitality will offset losses from the drop in DiamondRock Hospitality's long position.

The idea behind CECO ENVIRONMENTAL and DiamondRock Hospitality pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.